BIR Ruling [DA-110-02]

June 07, 2002 BIR RULING [DA-110-02] 27 (D) (5); 196 039-97 Tito Jovy Tower Unit Owners Association, Inc. Suite 405, Tito Jovy Tower, Buencamino Street Alabang, Muntinlupa City Attention: Ms. Rosemarie T. Lim Treasurer Gentlemen : This refers to your letter dated April 18, 2002 requesting, in effect, for exemption from the payment of capital gains and documentary stamp taxes on the transfer of a real property pursuant to a Deed of Conveyance and a Trust Agreement. It is represented that Tito Jovy Tower Unit Owners Association, Inc. ("the Association") is a non-stock, non-profit organization duly organized and existing under the laws of the Philippines, with principal office at Tito Jovy Tower, Buencamino Street, Alabang, City of Muntinlupa; that it is the beneficial owner of a Roof Deck located at Tito Jovy Tower, Buencamino Street, Alabang, City of Muntinlupa, containing an area of 308 square meters, covered by Condominium Certificate of Title No. 29665 of the Registry of Deeds of Makati City; that Tito Jovy Tower is a residential/commercial condominium building established under the Condominium Act (R.A. No. 4726); that under the Master Deed and Declaration of Restrictions executed for the said Condominium building and duly registered with the Register of Deeds, the aforesaid Roof Deck is one of the common areas allotted for the common use of the unit owners; that on the other hand, Spouses Ernesto T. Matugas and Filomena U. Matugas are owners of Unit No. 401 of the aforementioned Tito Jovy Tower, and has offered to make improvements on and maintain the said Roof Deck for the common use of all the unit owners, provided that the title of the same property is conveyed to and temporarily registered under their name in order to protect their interest as they shall be responsible for the cost of such improvements and the maintenance of the said Roof Deck to which offer the Association has accepted under the terms and conditions that in the event the spouses would leave their unit and cease to be members of the Association, they shall reconvey and transfer back the title of the said Roof Deck to the Association and all expenses incurred by the spouses in the foregoing undertakings shall be reimbursed by the members of the Association; that based on the foregoing, a Deed of Conveyance was executed on April 9, 2002 by and between the Association and Spouses Ernesto T. Matugas and Filomena U. Matugas, whereby the Association transferred to the spouses the Roof Deck covered by TCT No. 29665 of the Registry of Deeds of Makati City; that it is the understanding of the parties that an implied trust is deemed by law to have been created as a result of the above conveyance, whereby the spouses, in effect, hold the subject property as trustees for and in behalf of the Association pursuant to Article 1453 of the Civil Code of the Philippines; that in connection therewith and to make the above trust created a formal and an express one, the above parties executed a Declaration of Trust on April 18, 2002 recognizing the existence of a trust in the Deed of Conveyance they executed on April 9, 2002; and that on May 23, 2002, the above parties executed an Addendum to Declaration of Trust whereby they stipulated that the cost of improvements and maintenance of the Roof Deck that may be spent by the Spouses Ernesto T. Matugas and Filomena U. Matugas shall be reimbursed by the Association upon reconveyance and return of the Roof Deck. Based on the foregoing, you are requesting for an opinion as to whether a Certificate Authorizing Registration (CAR) can be issued tax-free for the registration of the above subject Roof Deck under the names of Spouses Ernesto T. Matugas and Filomena U. Matugas as trustees of the same pursuant to the aforesaid Declaration of Trust. In reply, please be informed that pursuant to Section 27(D)(5) of the Tax Code of 1997, capital gains presumed to have been realized from the sale, exchange or other disposition of lands and/or buildings which are not actually used in the business of a corporation and are treated as capital assets shall be taxed at the rate of six percent (6%) based on the gross selling price or the fair market value prevailing at the time of sale, whichever is higher. However, on several occasions, this Office has ruled that conveyance of legal title over a realty to trustees without transfer of beneficial title and without any consideration does not involve an actual transfer of ownership over such realty, hence, not subject to the capital gains tax. ( BIR Ruling Nos. 039-97, 123-93, 124-93, 125-93, 126-93, 127-93, 128-93 and 129-93 ) Applying the above rulings in the instant case, the Deed of Conveyance executed by and between the Association and Spouses Ernesto T. Matugas and Filomena U. Matugas dated April 9, 2002, transferring in favor of the spouses the legal title over the Roof Deck covered by TCT No. 29665 of the Registry of Deeds of Makati City with the intention that the latter will hold the said property only for the protection of their investments over the improvements made thereon, the expenses for which are subject to reimbursement by the Association upon reconveyance and return of the property, which facts were subsequently recognized by both parties by the execution of a Declaration of Trust dated April 18, 2002 and Addendum to Declaration of Trust dated May 23, 2002, whereby the spouses were constituted as trustees of the aforesaid property, is not subject to capital gains tax imposed under Section 27(D)(5) of the Tax Code of 1997. Moreover, under Section 191 of the Documentary Stamp Tax Regulations (Revenue Regulations No. 26), the conveyance of property to a trustee is exempt from documentary stamp tax. Section 191 of said Regulations provides: "Section 191. Conveyance to trustees or from trustee to cestui que trust, without consideration. Conveyances to a trustee without valuable consideration, or from a trustee to a cestui que trust without valuable consideration are not subject to tax." Accordingly, the deed conveying the Roof Deck to Spouses Ernesto T. Matugas and Filomena U. Matugas is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, the notarial acknowledgment of the said deed is subject to the P15.00 documentary stamp tax imposed under Section 188 of the same Tax Code. This ruling is being issued on the basis of tire foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group